Strategy Formulation:

Functional Strategy
and Strategic Choice

Strategy Implementation:
Global Strategy

CRIS Q. DE LEON, MBA

Dr. Jennifer Perez
1
DBA 613
Learning Objectives

 Identify a variety of functional strategies that can be

used to achieve organizational goals and objectives
 Understand what activities and functions are
appropriate to outsource in order to gain or strengthen
competitive advantage
 Recognize strategies to avoid and understand why they
are dangerous
 Construct corporate scenarios to evaluate strategic
options
 Develop policies to implement corporate, business and
functional strategies
Functional Strategy

Functional strategy
the approach a functional
area takes to achieve
corporate and business unit
objectives and strategies by
maximizing resource
productivity
Marketing Strategy

Marketing strategy
deals with pricing, selling
and distributing a product
Marketing Strategy

 Market development strategy

a company or business unit can
(1) capture a larger share of an
existing market for current
products through market
saturation and market
penetration or (2) develop new
uses and/or markets for current
products.
Marketing Strategy

Product development
strategy
a company or unit can (1)
develop new products for
existing markets or (2)
develop new products for
new markets.
Marketing Strategy

 Brand extension
 using a successful brand name to market other
products

 Push strategy
 trade promotions to gain or hold shelf space in
retail outlets

 Pull strategy
 advertising to “pull” products through the
distribution channels
Marketing Strategy

Skim pricing
offers the opportunity to
“skim the cream” from the
top of the demand curve
with a high price while the
product is novel and
competitors are few
Marketing Strategy

Penetration pricing
attempts to hasten market
development and offers the
pioneer the opportunity to use
the experience curve to gain
market share with low price
and then dominate the industry
Financial Strategy

 Financial Strategy
examines the financial implications
of corporate- and business-level
strategic options and identifies the
best financial course of action
 Themanagement of dividends and
stock price is an important part of a
corporation’s financial strategy.
Financial Strategy

 Leveraged buyout
 company is acquired in a transaction
financed largely by debt usually
obtained from a third party

 Reverse stock split

 investor’sshares are split in half for
the same total amount of money
Research and
Development Strategy
 Research and Development
Strategy
 deals
with product and process
innovation and improvement
 also
deals with the appropriate
mix of different types of R&D and
question of how new technology
should be accessed
Research and
Development Strategy
 Technological leader
 pioneering an innovation
 Technological follower
 imitating the products of competitors
 Open innovation
 firm uses alliances and connections with
corporate, government, academic labs and
consumers to develop new products and
processes
Operations Strategy

 Operations Strategy
 determines how and where a
product or service is to be
manufactured, the level of
vertical integration in the
production process, the
deployment of physical resources
and relationships with suppliers
Purchasing Strategy

Purchasing Strategy
dealswith obtaining raw
materials, parts and supplies
needed to perform the
operations function
multiple, sole and parallel
sourcing
Purchasing Strategy

 Multiple sourcing
 the purchasing company orders a particular
part from several vendors
 Sole sourcing
 relies on only one supplier for a particular part
 Parallel sourcing
 two suppliers are the sole suppliers of two
different parts, but they are also backup
suppliers for each other’s parts

Copyright © 2015 Pearson Education, Inc. 8-16

Logistics Strategy

 Logistics Strategy
 dealswith the flow of products into
and out of the manufacturing process

 Trends include:
 Centralization

 Outsourcing

 Internet
HRM Strategy

 HRM strategy
 addresses the issue of whether a company or
business unit should hire a large number of
low-skilled employees who receive low pay,
perform repetitive jobs and will most likely
quit after a short time (the fast-food
restaurant strategy) or hire skilled employees
who receive relatively high pay and are cross-
trained to participate in self-managing work
teams
Information Technology

Follow-the-sun
management
project team members living
in one country can pass their
work to team members in
another country in which the
work day is just beginning.
The Sourcing Decision:
Location of Functions
 Outsourcing
 purchasing from someone else a product or
service that had been previously provided
internally
 the reverse of vertical integration
 Offshoring
 the outsourcing of an activity or a function to
a wholly owned company or an independent
provider in another country.
Disadvantages of Outsourcing

Customer complaints

Locked in to long-term contracts

Lack of ability to learn new skills and develop

new core competencies

Lack of cost savings

Poor product quality

Errors in Outsourcing to Avoid

 Outsourcing the wrong activities

 Selecting the wrong vendor
 Writing poor contracts
 Overlooking personnel issues
 Lack of control
 Overlooking hidden costs
 Lack of an exit strategy
 Proposed Outsourcing Matrix

Figure 8-1
Strategies to Avoid
Hit
Follow the
another
leader
home run
Do
Arms race everythin
g

Losing
hand
Strategic Choice: Selecting the
Best Strategy

 Corporate scenarios
 pro forma (estimated future)
balance sheets and income
statements that forecast the
effect each alternative strategy
and its various programs will
likely have on division and
corporate return on investment
Corporate Scenario Steps

1. Use industry scenarios to develop

assumptions about the task
environment
2. Develop common-size financial
statements for prior years
3. Construct detailed pro forma
financial statements for each
strategic alternative
Scenario Box for Use in Generating
Financial Pro Forma Statements
Management’s Attitude
Toward Risk
 Risk
 composed not only of the
probability that the strategy will
be effective but also of the
amount of assets the corporation
must allocate to that strategy
and the length of time the assets
will be unavailable for other uses
Management’s Attitude
Toward Risk
 Real-options approach
 when the future is highly uncertain, it
pays to have a broad range of options
open
 Net present value
 calculates the value of a project by
predicting its payouts, adjusting them
for risk and subtracting the amount
invested
 Stakeholder Priority Matrix
Figure 8-2
Questions to Assess
Stakeholder Concerns
1. How will this decision affect each
stakeholder?
2. How much of what stakeholders want
are they likely to get under the
alternative?
3. What are the stakeholders likely to do
if they don’t get what they want?
4. What is the probability that they will
do it?
Pressures from Stakeholders

 Political strategy
 plan to bring stakeholders into
agreement with a corporation’s
actions
 constituency building, political
action committee contributions,
advocacy advertising, lobbying
and coalition building
Pressures from the
Corporate Culture
If there is little fit, management must decide if it should:

 Take a chance on ignoring the culture.

 Manage around the culture and change
the implementation plan.
 Try to change the culture to fit the
strategy.
 Change the strategy to fit the culture.
Process of Strategic Choice

 Strategic choice
 the evaluation of alternative strategies and
selection of the best alternative

 Failure almost always stems from

the actions of the decision
maker, not from bad luck or
situational limitations.
Avoiding the Consensus Trap

 Devil’s advocate
 assigned to identify potential pitfalls and
problems with a proposed alternative strategy
in a formal presentation
 may be an individual or a group
 Dialectical inquiry
 requires that two proposals using different
assumptions be generated for each alternative
strategy under consideration
Process of Strategic Choice

Criteria for evaluating alternatives

includes:
 Mutual exclusivity
 Success
 Completeness
 Internal Consistency
Developing Policies

When crafted correctly, an effective policy accomplishes three things:

 It forces trade-offs between competing

resource demands.
 It tests the strategic soundness of a
particular action.
 It sets clear boundaries within which
employees must operate, while granting
them the freedom to experiment within
those constraints.
STRATEGY IMPLEMENTATION:
GLOBAL STRATEGY
 Learning Objectives:
 Describe the means of entry by which an organization
can do business in another country
 Explain the elements of International Strategic Alliances
that lead to success
 Discuss the stages of International Development
 Explain how companies can improve their staffing
efforts as they expand beyond their home country
 Discuss the unique issues related to measuring
organizational performance that are presented with the
administration of a truly international company
GLOBAL STRATEGY

Global Strategy is the sum

total of the activities that
an organization takes in
order to compete in
markets outside its home
country.
INTERNATIONAL ENTRY

 Exporting
 Licensing
 Franchising
 Joint ventures
 Acquisitions
 Green-field development
 Production sharing
 Turnkey operations
 BOT concept
 Management contracts
INTERNATIONAL COORDINATION

 An international company is one that

engages in any combination of activities,
from exporting/importing to full-scale
manufacturing, in foreign countries. A
multinational corporation (MNC), in
contrast, is a highly developed
international company with a deep
involvement throughout the world, plus a
worldwide perspective in its management
and decision making.
INTERNATIONAL STRATEGIC ALLIANCES

 Strategic alliances, such as joint

ventures and licensing agreements,
between an MNC and a local partner
in a host country are becoming
increasingly popular as a means by
which a corporation can gain entry
into other countries, especially
countries that limit foreign
ownership.
Key drivers for strategic fit between alliance partners are the following:

 Partners must agree on fundamental values and have a shared vision

about the potential for joint value creation.
 Alliance strategy must be derived from business, corporate, and
functional strategy.
 The alliance must be important to both partners, especially to top
management.
 Partners must be mutually dependent for achieving clear and realistic
objectives.
 Joint activities must have added value for customers and the
partners.
 The alliance must be accepted by key stakeholders.
 Partners contribute key strengths but protect core competencies.
STAGES OF INTERNATIONAL DEVELOPMENT

 Stage 1 (Domestic company)

 Stage 2 (Domestic company with export
division)
 Stage 3 (Primarily domestic company with
international division)
 Stage 4 (Multinational corporation with
multi-domestic emphasis)
 Stage 5 (MNC with global emphasis)
INTERNATIONAL EMPLOYMENT

 To improve organizational learning, many

MNCs are providing their managers with
international assignments lasting as long
as five years. Upon their return to
headquarters, these expatriates have an
in-depth understanding of the company’s
operations in another part of the world.
This has value to the extent that these
employees communicate this
understanding to others in decision-
making positions.
RECOMMENDATIONS FOR THE
EXPATRIATION PROCESS
 Have a compelling reason for sending a current
employee to a new country.
 Choose individuals who are open to the assignment and
committed to adapt to the new environment.
 Assign sponsors/mentors in both the home country and
the new country.
 Develop a means of maintaining very open, frequent
communication throughout the assignment.
 Design a plan for repatriation.
 Craft an approach for sharing the experiences and
lessons learned within the company.
MEASUREMENT OF PERFORMANCE

ROI
Budget Analysis
Historical Comparisons
THANK YOU!